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Optimal tax treatment of the family: Married couples

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  • Boskin, Michael J.
  • Sheshinski, Eytan

Abstract

This paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples. For a population of taxpaying couples which differ in earning capacity, we derive the optimal tax rates for each potential earner. These rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates. Our results suggest that the current system of income splitting in the United States, under which husbands and wives face equal marginal tax rates, is non-optimal. Using results from recent econometric studies, and allowing for a sensitivity analysis, the optimal tax rates on secondary workers in the family are much lower than those on primary earners. Indeed, our best estimate is that the secondary earner would face tax rates only one-half as high as primary earners.
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Suggested Citation

  • Boskin, Michael J. & Sheshinski, Eytan, 1983. "Optimal tax treatment of the family: Married couples," Journal of Public Economics, Elsevier, vol. 20(3), pages 281-297, April.
  • Handle: RePEc:eee:pubeco:v:20:y:1983:i:3:p:281-297
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    1. Constantinides, George M & Scholes, Myron S, 1980. " Optimal Liquidation of Assets in the Presence of Personal Taxes: Implications for Asset Pricing," Journal of Finance, American Finance Association, vol. 35(2), pages 439-449, May.
    2. Martin Feldstein & Joel Slemrod & Shlomo Yitzhaki, 1980. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 777-791.
    3. Feldstein, Martin & Yitzhaki, Shlomo, 1978. "The effects of the capital gains tax on the selling and switching of common stock," Journal of Public Economics, Elsevier, pages 17-36.
    4. Martin Feldstein & Joel Slemrod, 1983. "Inflation and the Excess Taxation of Capital Gains on Corporate Stock," NBER Chapters,in: Inflation, Tax Rules, and Capital Formation, pages 101-115 National Bureau of Economic Research, Inc.
    5. Alan J. Auerbach, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 433-446.
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